Japan and Norway has joined the European Union in saying they'll impose sanctions on US goods to strike back at the Bush administration for steel-import tariffs imposed last year. China signaled it may punish the United States for curbing textile imports by placing contracts elsewhere and delaying investments.
Steel and textiles may be only the beginning. In March, the EU will begin phasing in $4 billion in duties on US products, from leather goods to nuclear reactors, to pressure American lawmakers to scrap a tax break that the WTO says violates export-subsidy rules.
Trade friction "would reduce investment prospects for the economy, raise costs, hurt company profits, and encourage other governments to follow a similar course," said Robert Hormats, vice chairman of Goldman Sachs International.
World Trade Organization director general Supachai Panitchpakdi said recently the risk of a global trade conflict is rising. Federal Reserve chairman Alan Greenspan said protectionism may destabilize the world economy and disrupt financial markets. World trade is worth $8 trillion a year. Grant Aldonas, undersecretary for international trade at the Commerce Department, said he expects passage of a tax law next year to persuade the EU to drop the threat to retaliate against the US export-tax break.
"It will be pushed through fast enough to avoid retaliation," Aldonas told a Brussels press conference "It is set up politically well in the Congress to get this thing moved within the first quarter of next year."
Referring to the steel sanctions, Citigroup Inc. chairman Sanford Weill said in a forum recently in New York that "we will be headed into a bad economic environment if other countries retaliate against these tariffs. We need to have a global coalition to promote trade, and I would like to see us rescind the tariffs. It's just not the way to resolve issues."
Tariffs and quotas can slow global investment by imposing limits on companies' ability to import and export goods and services. The dismantling of tariffs and investment restrictions under the 1994 North American Free Trade Agreement contributed to a three-fold increase in US investment in Mexico by 2000. In China's case, the government must approve investments by foreign companies.
"If relations deteriorate further between the US and China, China may consider delaying approvals of investments," said Andy Xie, chief China economist at Morgan Stanley Asia Ltd.
President Bush faces a decision soon on the steel dispute. Should he decide to drop the tariffs on $3 billion of imported steel, it would defuse the threatened retaliation by the EU and Japan. The WTO, the Geneva-based body that sets the rules for global commerce, said on Nov. 10 that the steel duties violate trade laws.
"If the tariffs are lifted, that's going to be a validation that this administration is truly serious about pursuing a free-trade agenda," said Bill Lane, director of government relations at Caterpillar, the world's largest maker of earth-moving equipment.
Bush pledged to make a "timely decision," with a Dec. 6 deadline for EU retaliation approaching.
Products of AMF Bowling Products Inc., a unit of AMF Bowling Worldwide, are on the EU's retaliation list. The company estimates that as much as 30 percent of its $125 million in annual revenue comes from sales of bowling alley equipment in the EU. "I would view that business as being significantly at risk if these tariffs get passed," said company president John Walker. AMF may lose sales to Brunswick Corp., which has a factory in Hungary, and to Asian competitors, he said.
The EU retaliation plan is "a particularly divisive strategy" intended to pit US industries against each other, said Ronald Gaskill, of the American Farm Bureau, a Washington trade group.
The Europeans don't intend to back down on the retaliation threat, EU Trade Commissioner Pascal Lamy told a business audience in Berlin. "This would send the message" that world trade is guided by the "law of the jungle where might is right," he said, referring to the US refusal to comply with the WTO.
The Bush administration imposes trade sanctions only when American jobs are threatened by what it considers unfair competition, as in the case of China and textiles, Commerce Secretary Donald Evans said in an interview.
"We've got to make clear to the Chinese that we're all going to play by the same rules," Evans said. "We're not going to sit around and tolerate 50 percent of your industries being state-owned and so having state subsidies."
Companies such as Boeing and Caterpillar may be among those affected should China respond to the Commerce Department ruling Nov. 18 limiting growth of the nation's textile exports to 7.5 percent a year. Other disputes have emerged. US furniture makers, including Bassett Furniture Industries Inc., Stanley Furniture Co., and Hooker Furniture Corp., have petitioned Bush to levy tariffs of as much as 440 percent on $1 billion a year of bedroom sets from China.
US steel producers and wire hanger makers are among other manufacturers that have asked the government to block imports from China.
The US trade deficit with China may total $130 billion this year, up from a record $103 billion in 2002. More than 2.6 million manufacturing jobs have been lost since Bush took office, and groups such as the National Association of Manufacturers have blamed what they call unfair trade practices by China.
Chinese officials say that they are studying plans to impose tariffs on some US manufacturers and that future contracts for goods such as Boeing planes will be contingent on good relations. Boeing says Chinese airlines probably need about 2,400 aircraft worth $197 billion during the next 20 years.
Retaliatory tariffs by China would be illegal, because the country accepted a provision when it joined the WTO that allows other governments to impose caps unilaterally to prevent its products from disrupting markets and hurting domestic industries.
Yet China has other ways of striking back. The government canceled a soybean-buying trip to Chicago on Nov. 19, triggering a drop in soybean prices and wheat futures. The Royal Bank of Canada said in a report that China, the third-biggest international investor in US Treasuries, may also sell some holdings.
"We want to abide by rules stipulated by" the WTO, said Song Chaoyi, deputy director of China's top planning ministry. "But we also expect others to do the same. When they don't, we have to do what's necessary to protect our national interest."
China has recently agreed to buy 30 planes from Boeing worth "more than $1 billion," Song said. The purchase is part of China's effort to narrow the country's trade gap with the United States, together with agreements to buy American cars.
"Where we next order our planes would rely not just on commercial considerations," Song said. "It would also be contingent on relations between our government and the US"
Boeing said politics shouldn't play a part in trade.
"Boeing approaches every sale to our international customers with the hope that decisions to purchase our products will be based purely on the capabilities, quality, and value of our offering," said Doug Kennett, a company spokesman.
Three carmakers signed accords Nov. 12 to export US vehicles and parts to China. General Motors Corp., the world's largest automaker, received permission to sell 5,500 vehicles, mostly Buicks and Cadillacs, and auto parts valued at $1.3 billion over two years.
Ford will send as many as 5,250 US-made vehicles with an unspecified value by the end of 2004. DaimlerChrysler AG will export 4,500 Mercedes and Chrysler vehicles in the next year.
"We are concerned about where this might be going between the US and China, and we hope things don't escalate," said Marie Kissel, senior manager of trade policy at DaimlerChrysler. "We're hoping cooler heads will prevail."
Ford, which started building cars in China in January, said it plans to spend as much as $1.5 billion to expand its auto plant in Congqing, add a second vehicle assembly unit, and construct an engine factory.
Caterpillar's Lane said it's "important that we practice what we preach. The US is out of compliance in a number of areas, the most notable being steel." The company's Caterpillar China Ltd. unit, based in Hong Kong, has factories, training centers, and dealers across China, supplying more than 300 products used in areas including road building, construction, gas and oil extraction, and power generation.
© Copyright 2003 Globe Newspaper Company.